With the US presidential election upon us, investors seem to be pulling their money from a flaccid commodities sector and instead turning to the American dollar, according to an analysis by Saxo Bank.
During the week ending 29 October, the Bloomberg Commodity Index dropped 1.5%, with broad losses across all metals except gold and silver, which remained flat. The biggest loser was energy, with crude oil losing more than 6% and natural gas slumping roughly 10%.
“The metals sector was mixed, with long liquidation in gold and silver on increased election and FOMC jitters joined by another week of copper selling, while the PGMs stood out, supported by a near 14% rally in palladium on continued short covering amid Russian supply risks,” Ole Hansen, Saxo’s head of commodity strategy, wrote.
Managed money accounts, such as hedge funds, promptly responded to the changes with broad selling action.
According to data from the US Commodity Futures Trading Commission, the ICE Exchange Europe, Bloomberg and Saxo, 20 out of the 27 major commodity futures tracked reported net selling. This was led by crude oil, diesel, gold, and silver, while demand was focused on platinum and palladium.
Indeed, the money appears to be flowing towards the US dollar as traders position themselves for what could be a ‘red sweep’. Investors may be concerned that a win by Republican candidate Donald Trump could lead to excessive government spending, pushing the debt-to-GDP ratio higher while fuelling inflation fears.
This, Hansen notes, could potentially slow the pace of anticipated rate cuts by the US Federal Reserve, “thereby making the greenback relatively more attractive from a rate differential perspective”.
Write to Oliver Gray at Mining.com.au
Images: iStock
